Sunday, September 30, 2018

September, 2018, Part 1, By The Numbers: Which Goes Bankrupt First, California Or Washington D.C.?

On a semi-regular basis we do a post under the theme, “By The Numbers.” Under this theme we analysis the crazy ways that politicians use numbers, from making them up outright, to using them inappropriately, to using them to lie to us. The problem for them when they do that is it is so easy to show how either stupid they are or how conniving they are. 

As an FYI, as you read my analysis of the misuse of numbers, keep in mind that I have a masters degree in statistics and for most of my life have been involved in analyzing numbers and stats. Politicians misuse of numbers and statistics is taken as a personal and professional affront to me and my profession.

1) One of the perennial problems with politicians and government entities is that they always underestimate the cost of a project to get it approved and then when reality hits of the real costs, it is tough to stop the stupidity since so much money has already been invested. This is perfectly illustrated by the infamous California government project to build a high speed rail line along the length of the state. 

Let’s look at the latest numbers from this project:
  • Back in 2013, the high speed rail advocates claimed that the entire project would cost $33 billion.
  • Five short years later the current estimate has more than doubled to $77 billion.
  • The estimated completion date is now pushed out to 2033.
  • Given that the estimated cost more than doubled in five years, how much do you think the project will actually cost 15 years from now, assuming that the effort still exists?
  • While trying to build a fairy tale high speed rail line, the state needs at least a whopping $177 billion to fix the state’s roads and bridges.
  • So in order to fix the existing and build the new transportation infrastructure, the state government needs to spend over a quarter TRILLION dollars in ten years.
  • Given that there are just over 11 million households in the state, every state household would have to write a check for $22,000 to pay for these infrastructure needs, ASSUMING that these costs do not rise over the years, a highly unlikely occurrence.
Given that California is on the road to fiscal insolvency, it will be next to impossible to find the money to fund all of this neglect (current bridges and roads) and pie in the sky plan (high speed rail), given how highly taxed California households are already taxed. The numbers do not lie, the state is on a disastrous road to financial ruin.

2) We recently did a post on how the Social Security, Medicare, and Medicaid programs have over $80 TRILLION in unfunded fiscal liabilities, a reality that will likely bankrupt the country in the not too distant future. But besides the $80 trillion shortfall for these programs we also still have the problem of the ever escalating national debt that is over $21 TRILLION today.

The Money and Markets website recently posted an article by J.T. Crowe on September 28, 2018 about how dire the national debt problem is:
  • Within the next ten years, the Federal government will likely be spending over $900 billion a year just on the interest being generated by the national debt according to the Congressional Budget Office.
  • This comes down to over $7,000 a year for EVERY U.S. household.
  • That $900 billion will likely be more than what will be spent on defense, Medicaid and children programs.
  • This is $900 billion that cannot be spent on real needs including infrastructure, education, and other vital necessities.
  • In 2019, the cost of national debt interest will be $390 billion, up a whopping 50% since 2017.
  • While the Federal government national debt to GDP ratio has historically been between 30% and 40% in peace times, under Obama it skyrocketed upwards to over 70% in eight short years and will continue to grow unless drastic actions are taken.
  • As stated in the article, “According to the CBO, interest payments will surpass Medicaid spending by 2020 and the Department of Defense budget by 2023.”
So, California has more expenses than it can ever expect to cover and the Federal government’s national debt is going to eventually bankrupt the government and crash the economy unless drastic measures are taken now, at both the state and Federal level, the numbers do not lie. More numbers to follow.

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